Real estate and entertainment conglomerate Wanda Group is undertaking a fourth strategic transformation that involves closing some department stores and divesting its karaoke bars to restructure its traditional businesses, the group told the Global Times on Monday.
With the rapid development of shopping centers and e-commerce, sweeping changes have taken place in Chinese consumers' spending habits and consumption patterns, and these transformations have inevitably had an impact on retailers and caused losses at some of Wanda's department stores, Qu Dejun, President of Wanda Commercial Management Co, said in a statement Wanda sent to the Global Times on Monday.
"It's a normal business practice to make adjustments to these department stores," he said. "Wanda's recent adjustment is a proactive one based on market prospects and consumer demand, which will lead to higher rental income."
As part of its transformation strategy group Chairman Wang Jianlin announced on July 11, Wanda will reduce the number of physical stores with the help of e-commerce.
He has said on many occasions that during Wanda's fourth transformation, it will upgrade to a modern service provider with less reliance on property ownership.
Qu also mentioned that with its slender profit margins, the karaoke parlor business no longer suits Wanda. The company plans to transfer its karaoke facilities to local operators in hopes of recouping its investment in the sector.
The statement followed media reports that Wanda will close about half of its department stores and 80 karaoke bars.
According to a Securities Daily report citing an internal document from the group, Wanda is closing more than 40 loss-making department stores across the country and reducing the floor space of 25 underperforming stores in Shanghai, Chongqing and other cities. The department stores to be closed are in cities such as Ji'nan in East China's Shandong Province, Tangshan in North China's Hebei Province and Jingzhou in Central China's Hubei Province.
Wanda had 86 department stores nationwide as of June 30, according to the group's website.
A report from the China Youth Daily said that in early July, Wanda informed vendors who rent space at some of its department stores of the termination of their leases. The company aims to remodel its stores to better meet consumer demand, the report said.
Although Qu only said in the Monday statement that Wanda would adjust its department stores in line with local conditions, some media reports also mentioned that Wanda plans for the stores to offer more of an "experience" to shoppers.
The traditional brick-and-mortar retailing sector is facing intense internal competition as well as pressure from e-commerce, which offers consumers more transparent prices and wider choices, according to Chen Lilin, general manager of consulting at RET Property, a Shanghai-based commercial real estate consultancy.
"In this sense, a shift toward the 'experiential' model could become a major trend for traditional retailing businesses," she told the Global Times on Monday. "And the fundamental reason behind such a shift is the evolution of consumers' habits, preferences and demand."
For department stores, an "experiential" business model refers to a combination of restaurants, children's playgrounds, entertainment facilities and cultural offerings, Chen said.
This isn't the first time that Wanda has moved to close stores. At the beginning of this year, it announced plans to shut about 10 loss-making department stores and restructure 20 across the country to improve profitability.
According to the company's interim results, department stores generated 12.99 billion yuan ($2.09 billion) in revenue, up 17 percent year-on-year. But the company did not reveal the operating costs of the stores, so it's difficult to quantify the performance of this business segment.
However, many of the department stores have been losing money and receiving subsidies from Wanda Commercial Properties, media reports said,
Department stores' fortunes have been on the wane for years. Nationwide, 26 department stores including the 10 from Wanda closed in the first half, the Xinhua News Agency reported on July 28.
It said that none of these stores had turned a profit since 2007.